Allen & Overy has given its junior associates terrific pay rises which other firms may soon be forced to match.

After a general move by firms over the last couple of years towards discretionary and bonus-based systems, A&O has folded bonuses into salaries in a revival of associate lockstep. The Magic Circle firm watched and waited as Linklaters, Slaughter and May, Clifford Chance and Freshfields all announced relatively small pay rises. Then last Friday it unveiled increases of up to 27%:

State of pay
1PQE 2PQE 3PQE Total post-qualification earning over four years**
A&O (old pay)  Raised
 (66.5) 78.5
 (72.5) 92  (82.5) 104.5  (93.5) 115  390
Clifford Chance
 Raised  70  75.5  88  98.5  332
 Frozen  70
 75 90.6
 96.8  332
 68.5  74  85.6  95.5  324
 Raised  70  75.5  87  96.5  329

*NQs and 1PQEs fall within Freshfields' Career Milestones Foundation band which pays £67,500 to £77,500. 2PQEs and 3PQEs fall within CM1 which pays £87,500 to £100,000  
**excluding bonuses

Trainee salaries have also been increased, by £2,000, but the hikes for associates are something else. 2PQEs will receive an additional £22,000 per year, 3PQEs £21,500 and 1PQEs £19,500. A&O's new salaries even challenge the dominance of US firms. From August, a 3PQE at Allen & Overy will be on a higher salary than contemporaries at big-spenders like Weil, Shearman and Skadden. Summer will be particularly pleasant, since the raises are backdated to May.

  Time for an upgrade

A&O decided to fold bonuses into salaries after
an internal review revealed that associates valued the certainty of a larger salary more than an annual bonus. Global Managing Partner Wim Dejonghe said that the move would provide "more consistent recognition for the work they do every day". A bonus will still be available, but only for "exceptional" contributions, which presumably now means both kidneys, minimum.

However the new pay levels won't be seen as salaries-plus-bonuses for long, and other firms are bound to have to respond. In 1998 legacy SJB and Clifford Chance upped associate salaries enormously and all the other top firms were forced to match them. Things could be about to get spendy.
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Anonymous 24 July 15 09:38

I think finally an MC firm has realised that they can't keep fobbing us off with the line that "We do pay top of the market. Its just that US firms aren't in our market. And we have better training (think of all those workshops we hold for you on Accountants' Comfort Letters in IPOs - completely free!). And more paralegal support. And your partnership prospects are 1:150 here, whereas in US firms its 1:175. So that's why you deserve £30k pa less."

The other great thing about this is that bonuses are subjective. Whilst intended to reward 'star performers' they usually reward the WASP male associate that has the best rugby chat, in an opaque manner. Finally, bonuses don't help when trying to get a mortgage. And if I've learnt anything from this financial crisis, its that I need to over-extend myself to the maximum amount of debt I can take on, and this is going to help big time.

Bravo A&O (although its taken you a few years of lagging behind the rest), time for the rest to follow...

Anonymous 24 July 15 10:25

lol @ the down arrows to the previous comment! Who is anti a pay rise? (i) partners; (ii) HR on a tight leash; (iii) Jeremy Corbyn. Who are you???

Anonymous 24 July 15 11:05

@09.25 - I think Jeremy Corbyn wouldn't mind you getting a pay rise at all, so long as you paid tax on it!

Anonymous 24 July 15 11:22

A&O works on the 1 to 5 grading system for reviews, with 1 being the best and 5 being the worst. Although, in reality, this is a 1 to 4 scale as it is seen as too bad to give a 5. The old bonus was linked to the grade people received in their appraisals. The pay increase has added on a grade 3 bonus from the old scheme plus another slight uplift. This generally works out well for juniors and mid-levels but works out worse for anyone more senior (as they would be the ones that usually get 1s or 2s). Essentially most senior associates have lost a "pretty much" guaranteed bonus and had it replaced with a pay increase which is far less. There is still the "discretionary" bonus but there is (as yet) no objective method for calculation and it is obviously not guaranteed. So there may be a lot of senior associate departures next year if they do not get the discretionary bonus correct...

Anonymous 24 July 15 12:33

It seems that there are people on here actually moaning about the payrise?! Seriously!! Get a grip!! Your 'payrise' is more than some people get paid in a year. Just be thankful! If you don't think its fair go to another firm!

Anonymous 24 July 15 14:52

Irwin Mitchell staff have been informed we should be happy with our measly 2.5% raise which, apparently, reflects the market....clearly the powers that be need to sign up to the ROF newsletter...

Anonymous 25 July 15 09:37

And yet associates continue to flee A&O like rats deserting a sinking ship, notwithstanding these pay rises. Management clearly thinks that only money talks...

Anonymous 25 July 15 21:08

Writing as an A&O English qualified associate in an international office, this is a very interesting development.

Anonymous 26 July 15 18:00

Could completely change salary structures across the City. Surely a welcome change for A&O associates?

Anonymous 27 July 15 09:45

Don't get your hopes up, anon @ 20.08. Doubtless there's an exception to the global policy...

Anonymous 27 July 15 11:02

I think the market is just waiting to see how the next round of bonuses (I suppose 2016) will be affected by this salary change.

Anonymous 27 July 15 14:22

"And yet associates continue to flee A&O like rats deserting a sinking ship, notwithstanding these pay rises."

I assume they won't be going to US firms though, which is probably what management appears to have tried to stop. Thoughts from people in the firm?

Anonymous 28 July 15 15:41

As a mid-level at another MC firm, can confirm A&O pay rises have been met with envy by us grunts and, at least initially, denial by the powers-that-be (who promptly dug holes in the sand and stuck their heads in, claiming the headline numbers were "too good to be true").

As things stand, even someone at the 'top end' of our base pay at each level with a ~20% bonus at the end of the year would barely match what's now guaranteed to EVERYONE at Bishop's Square; and there are plenty don't get anywhere near that percentage, perhaps only a handful in each dept who exceed it.

Anonymous 28 July 15 15:44

Also as someone else pointed out A&O retained bonuses for 'exceptional' performances - meaning if you are a 'high performer' (barf) smashing it at your shop and somehow matching/slightly exceeding the figures published, you'd probably still be better off at A&O!

Anonymous 29 July 15 16:31

From discussions with friends at debt funds and accountancy/tax firms, my general feeling is that Law is falling behind the cost-benefits curve in the City - UK firms do need to do something to compete with other finance related industries. Bravo A&O. You will drag the rest of these PEP-hording dinosaurs with you. Hopefully.

Anonymous 30 July 15 13:04

@anonymous 15.31 - I agree, but I wouldn't hold your breath! What concerns me more than anything is the attitude that infects partners as seemingly every firm; PEP hoarding and screwing your staff is a crap way to run a business. It leads to appalling morale, and is wildly inefficient (especially when combined with the dismal management practices that invariably accompany it). Just occasionally you meet an enlightened partner who recognises this, and who sees that maybe, just maybe, limited company structures and/or ABSs might have something going for them. But those individuals really are rarer then hen's teeth.

Anonymous 30 July 15 23:39

@anon 12:04, what is better about a limited company / abs structure than a traditional partnership? I don't see any particular benefit for associates and other employees in profits going to shareholders rather than partners.